GCP Infrastructure Investments has published results for the 12 months ended 30 September 2021. It delivered an NAV return of 7.2%, but the shares moved to trade on a small discount, which resulted in a return to shareholders of -7.9%. The rebasing of the dividend from 7.6p to 7.0p was well flagged and has been discussed in our recent notes. The dividend was covered 1.1x by adjusted net earnings. Other highlights were:
- Profit for the year of £62.4m (30 September 2020: loss of £0.7m) primarily due to revaluations in respect of high near-term electricity futures prices.
- The company entered into arrangements to partially hedge its financial exposure to electricity prices during the year.
- New revolving credit arrangements for an aggregate amount of £165m, replacing the company’s previous revolving credit facility
- Loans advanced totalling £94.8m, secured against UK renewable energy, social housing and PPP/PFI projects. The company also received loan repayments of £51.4m
- NAV per ordinary share at 30 September 2021 of 103.92p (30 September 2020: 103.99p)
- Third party independent valuation of the company’s partially inflation-protected investment portfolio at 30 September 2021 of £1.1bn (30 September 2020: £1.0bn)
- Post year end, the company made further advances of £2.2m and received repayments of £4.7m
- The company entered into a conditional agreement to dispose of its investment in an offshore wind farm post year end. The expected disposal proceeds, representing a c.12% premium to fair value, which demonstrates the conservative approach to renewables valuation.
[The discount has been eliminated since the period end and the shares are now back trading at a modest premium. We feel that these results justify this.]
Ian Reeves CBE (chairman) commented “It has been hugely rewarding to witness and contribute to the company’s success over the eleven years since IPO. In a world where the 15 year gilt rate, as a proxy for the risk-free rate at which the company is investing, has reduced by c.75% since IPO, and infrastructure as an asset class has significantly matured, the company’s payment of a stable dividend over this period is an achievement of which all contributors should be extremely proud.”… “The decarbonisation of the UK economy over the next 30 years will involve the most significant transformation of our infrastructure that has occurred in recent history. Whether existing or new technology will enable this transition, it is clear that significant private sector investment will be required to transform our infrastructure over this short time frame. The company remains well placed to capture exciting investment opportunities, which are aligned with the original investment policy and objectives, as part of the UK’s transition to net zero. It also maintains an attractive pipeline of new investments and follow-on investments in existing investee companies as part of optimisation programmes.”
New investments in the period included a subordinated investment in a portfolio of 14 run-of-river hydro projects in Scotland and investments to fund the ongoing construction of the deep geothermal project being built adjacent to the Eden Project in Cornwall. Existing portfolio investments included the extension of a senior loan facility with Good Energy plc, through the introduction of the first commercial onshore wind farm in the UK at Delabole, Cornwall into the financing facility.
Extensive pipeline
The investment adviser sees a material investment opportunity in renewables across electricity, heating and transport as part of the transition to net zero. Given that this transition will require the financing of both asset classes with which the company is familiar, and new asset classes that would further contribute to the company’s objective of diversification, it believes that the company is well placed to benefit from the investment opportunities that will emerge.
In the adviser’s view, mechanisms to attract investment in support of the decarbonisation agenda show some promise. The fourth contract-for-difference auction in December 2021 will, for the first time since 2014, support solar PV and onshore wind. Offshore wind has been allocated its own budget, opening up competition for other less-established technologies to win contracts. The Green Gas Support Scheme, introduced late in 2021, provides support for the decarbonisation of natural gas. During the period, the Government published strategies on the net zero transition, hydrogen and the decarbonisation of transport and industry. Subsequently, after the period end, the Government also published the strategies on heat and buildings.
In addition to the more established decarbonisation sectors, the company is reviewing opportunities in other sectors that will be fundamental in contributing towards the net zero target, such as forestry, electric vehicles and controlled environment food production. All represent attractive diversification opportunities, whilst continuing to maintain the company’s core focus on UK infrastructure debt.
The statement says that the company may consider issuing new equity to finance its pipeline at an appropriate time.
GCP : GCP Infrastructure sees opportunities from decarbonisation agenda